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Burlington, Ontario

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 Auto Lease

A Leasing company offers a lease on a \$31,500 factory new vehicle for 48 months at 7.25% and asking for monthly payments of \$555.68 with no money down (no deposit). The lease buyback (aka the "residual") at the end of the 48 months is \$14,000

QUESTION: Is this a fair or reasonable offer?

Most lease financing in todays market is nothing more than a loan with monthly payments and monthly compounding with a balance owing (residual or lease buyback) at the end of the lease. The only difference between a lease and a loan is that the leasing company asks for the payments in advance.

A simple way of answering this question is to look at it as a loan of \$31,500 at 7% with monthly compounding, amortized for 4 years (48 months) with a lease buyback of \$14,000. In other words what would the monthly payments be in order to have a balance owing of \$14,000 after 4 years. The program is going to calculate the monthly payment.

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You will notice the monthly payment is calculated to be \$505.68 thus the lease company is making a \$50 per month profit on payment markup. ANSWER This deal looks fair or reasonable based upon the mathematics of the loan. You can never be 100% certain about the hidden rebates and whether the residual is realistic and fair. That is why you must read the squint print (fine print) on the lease contract.

BONUS FEATURE: A unique or handy feature is that by typing in different amounts in the calculator's Residual Value box you can immediately see how the monthly payment changes (while holding the interest rate and amortization period constant).

QUESTION: How much would the monthly payments on my \$100,000 mortgage at 7% have to be in order to have a balance of \$10,000 at the end of 10 years.

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